Commentary: What you don't know about the economy ...

This article first appeared in the St. Louis Beacon, Dec. 4, 2008 - In a syndicated column that ran in the Nov. 30 Post-Dispatch, Kathleen Parker reported on a new study by the Intercollegiate Studies Institute that sought to measure the civic literacy of the American public. The findings were predictably grim.

We've all become accustomed to these sorts of exercises. They typically reveal that most voters think the Electoral College is in the Ivy League or that the Gettysburg Address is a post office box somewhere in Pennsylvania. The dismal ignorance of the man on the street affords the smug reader a transient sense of superiority. That pleasant sensation lasts until said reader realizes that the ballots of these idiots count equally to his or her own.

Pray for widespread voter apathy -- it may be our only hope.

Among the lamentable discoveries of the most recent study is the fact that "only 17 percent of college grads understood the difference between free markets and centralized planning."

At first blush, that statistic would seem to offer a telling indictment of the inadequacies of undergraduate curricula. Upon further review, however, it may merely mean that the college grads surveyed were having trouble reconciling the Troubled Asset Relief Program (TARP) with the laissez-faire philosophy of Adam Smith. The guy who dreamt up the former was clearly one of the 83 percent who didn't get the distinction between the two approaches to economics.

The big October surprise of the recently concluded presidential campaign was the revelation that the international banking system was essentially a poorly run loan-sharking operation on the brink of collapse. This epiphany was the economic equivalent of the 9/11 attacks: In both instances, long-simmering underlying problems manifested themselves in sudden, cataclysmic fashion.

In response to 9/11, President George W. Bush was ceded largely unfettered executive authority to do what was necessary to prevent further disaster. This broad latitude would ultimately prove to be his undoing as it afforded him the political capital to launch the catastrophic invasion of Iraq.

In the case of the banking crisis, Treasury Secretary Hank Paulson became the czar du jour. A bipartisan coalition of duly somber-looking legislators emerged from a private conference and gave him $700 billion along with a mandate to do something or other to avert total calamity.

Judging from constituent feedback, TARP was not universally popular. Rep. Michael Burgess, R-Texas, reported, "The telephone, fax and e-mail systems in my office have been deluged. This is madness, to ask us taxpayers to cover the liabilities of Wall Street."

Then again, had the congressman's righteous constituents found their local ATMs transformed into slot machines, they probably wouldn't have been satisfied with that result either: Enter your pin number to see if you get lunch money. If two cherries and a lemon pop up on the screen in place of your account balance, try again tomorrow.

Though government intervention is clearly preferable to financial collapse, TARP is not without its own cruel ironies. Bank of America, for instance, has thus far received about $25 billion from the program. B of A was one of the principal lenders in InBev's recent takeover of Anheuser-Busch. The American taxpayer thus helped to finance the sale of our largest brewery to a foreign concern.

As InBev takes over, it inherits a perennially profitable operation along with $52 billion in takeover costs. With this albatross of debt around its corporate neck, InBev can ill afford to conduct business as usual. So, while corporate profits are exported to Belgium, good-paying American jobs will be slashed in the name of cost-cutting efficiency, thereby thinning the ranks of the very taxpayers who helped to make the takeover possible in the first place.

Another TARP recipient, Citibank, has announced plans to raise the interest rates on its existing credit accounts. This is being done to offset anticipated increases in default rates brought on by growing joblessness. Of course, by making credit more expensive, this move will further depress consumer demand, which, in turn, will further reduce the need for domestic jobs.

Though TARP funds were intended to loosen credit markets, the bank's federal windfall did nothing to deter it from raising credit rates.

It's becoming increasingly obvious that these downward economic spirals are never going to be reversed by pumping money into Wall Street. The market reflects economic reality far more than it shapes it.

The recent decades of expanding affluence were characterized by a collectively negative savings rate and widespread E-Z credit. Now that the latter has dried up, the consumer is strapped. With no savings to fall back on and no home equity left to borrow against, he's been forced to behave responsibly. Like an outbreak of chastity in the bordello district, this development may be good for the soul but it's bad for business.

Government money -- our money -- would be better spent creating and protecting good-paying domestic jobs while doing everything possible to ease the burden of credit debt on the beleaguered consumer.

When everybody has cash, people spend. And when people spend, economic demand for goods and services surges. As JFK understood, "a rising tide lifts all boats".

Regrettably, the public remains largely ill-informed on this matter. Recent surveys reflect ambiguity and indifference about the bank bailout -- but a growing consensus that the Electoral College should have a football team.

M.W. Guzy is a retired St. Louis cop who currently works for the city Sheriff's Department. His column appears weekly in the Beacon.